News and commentary about road pricing across the globe. Tolls, congestion charging, distance based charging, road user charging. Public policy, economics, technology and more. If Google brought you here, look down the right sidebar for references.

Wednesday, 24 August 2011

You know that debates about transport policy in a city have matured when the debate about road pricing isn't about whether to do it, but how to do it and how much it will cost.

Copenhagen has long talked about some form of congestion charging, following on from experiences of their brethren in Stockholm and of course, London. This report (PDF) commissioned by the Forum of Municipalities for Copenhagen a few years ago, gives a graphic description of how Copenhagen congestion pricing might work. It modelled results for a variable all day cordon charge, operating in both directions as follows:

Monday-Friday:

25 DKK (US$4.84) 0600-1000, 1400-1800

10 DKK (US$1.94) 0500-0600, 1000-1400, 1800-2300

Saturday-Sunday

10 DKK (US$1.94) 1000-1700

It is notable that weekend congestion is considered serious enough to charge for as well. The proposal was for improvements to public transport, cycling, park and ride and some selected road improvements (and major ITS infrastructure to manage traffic) to be financed in advance and paid for by the charge. The result modelled was a 23% reduction in traffic within the cordon, and 4% reduction across greater Copenhagen. More generally, the report indicates positive environmental results, and the negative effects on users are fairly minimal and evenly distributed. The report is light, but most interesting to me was the proposal to have a commercial company responsible for the system and the management of the revenue, which is likely to deliver better results to users and in terms of risk management.

The most recent debate has come about because the opposition Social Democrat and Socialist People's Party have come out campaigning for a Copenhagen congestion pricing scheme.

The Copenhagen Post reports them saying "A congestion charge in Copenhagen will raise 2.2 billion kroner a year if we charge 40 kroner during rush hour and 20 kroner outside of rush hour with the system costing 200 million kroner a year to run". 2.2 billion DKK is about US$425 million, 40 DKK about US$7.75 and 20 obviously about US$3.87.

The idea is essentially for a cordon based charge, and the centre-left Social Democrats want all of the net revenue to be used to improve public transport, or reduce public transport fares. Quite how much spare capacity Copenhagen public transport has to cope with the mode shift is unclear, particularly when such a flat and easily walked (and cycled) city may mean reduced public transport fares shift people from walking and cycling.

The Socialist People's Party is a more hardline leftwing party akin to the "Green" parties of other countries, so the two left wing parties are clearly appealing to environmentalists and non-car users in the country.

Now you'd expect criticism of the scheme from the government to be all about favouring motorists and opposing road pricing. However, it is more nuanced than that if you read responses to the proposal in the Copenhagen Post. Whilst motorist lobbyists and businesses have said road transport is already too heavily taxed in Denmark, the centre-right (leading party in government) Liberal Party slammed the proposal as being too expensive for motorists, and for putting an unnecessary barrier up in the city. It also claimed public transport couldn't cope with the mode shift, and that the charge would be "arbitrary" in terms of its effects.

However, the centre-right Social Liberal Party (which is in opposition) suggested distance based national road pricing would be preferable, by saying that:

"The brilliance of road pricing is that you can regulate how much motorists pay according to how much they drive, where they drive, when they drive and what they drive. And motorists from areas without public transport would not pay".

Now that doesn't mean Copenhagen will be getting congestion pricing anytime soon, but it does mean the debate has been moving on. The key to making progress is likely to be talking about a tradeoff between implementing national road pricing, there being a congestion "premium" for Copenhagen, and partially offsetting existing taxes on motoring.

I don't doubt that congestion pricing could make a positive difference for Copenhagen, but in a land where motoring is so highly taxed, merely taxing it more to pay for public transport is not only unlikely to get sufficient support to proceed, but also failing to deliver real benefits to motorists that do not generate the congestion and environmental problems that advocates are seeking to address.

Friday, 19 August 2011

Flanders Today reports that the three regional governments of Belgium have agreed to introduce a tolling system for all goods vehicles over 3.5 tonnes from 2013. The roads to be charged will be motorways and major highways, but each regional government will be free to add roads to the tolled network (and are expected to do so, to avoid excessive traffic diverting to untolled routes). The system will replace Belgium's participation in the Eurovignette, a standard time based (according to days, weeks, months or a year of pre-purchased usage) charging system that applies across several EU Member States.

Tolls will be charged on a distance basis, with lower charges for more environmentally friendly vehicles. It is expected the system will be done using on board units, although the technology to be used has not yet been identified. As two of Belgium's neighbours either have (Germany) or about to have (France) GPS based distance charging, it is reasonably expected Belgium will as well.

Light vehicles will not be free of charge on the networks though. A light vehicle vignette will be introduced, similar to that now existing in several European countries (e.g. Austria, Slovenia, Czech Republic). Vehicle owners wishing to use the charged network will have to purchase a sticker covering a set period of usage of the network in intervals that will probably range from a number of day up to a year.

Belgium's introduction of a heavy vehicle distance based tolling system will add to the growing list of European countries with such a system, although with differing technologies. The list being:

Thursday, 18 August 2011

Heavy vehicle road pricing in the European Union is governed by EU law, best summarised in a Directive I am quite familiar with.–Directive 1999/62 otherwise (inaccurately) known as the Eurovignette Directive. It sets rules that, in summary, have meant that Member States can charge heavy vehicles for road use, but only up to their contribution towards infrastructure costs. They have been allowed to vary charges based on environmental and congestion factors, but still must only recover in total the costs of maintaining and developing the infrastructure.

The recently announced changes will mean that Member States will be able to charge large trucks an additional 3 Euro cents per kilometre to cover air pollution and noise.

Charges for congestion (which are already permitted) can now be up to 175 per cent more than the average charge during peak periods of up to five hours. Lorries with greener Euro V-class engines are exempt from the charges until 2014, providing firms with an incentive to operate cleaner fleets. The changes have to be adopted by the European Council and will take two years to come into force.

I'm somewhat wary of charging for noise, given that noise is typically internalised in the prices of properties adjacent to noisy roads. Unless the additional "noise" money is being used to mitigate noise at those properties, it would seem like a less than well targeted surcharge. On air quality, it is simply an extension of what is already done by some Member States (e.g. Germany, Austria, Czech Republic) in charging less for cleaner burning engines compared to the dirtiest ones. That has had positive results in Germany at least, where stats I have seen show a profile of heavy vehicle usage moving significantly towards the Euro IV and V categories of engines. However, congestion based charging is more difficult, given that without charging of all vehicles, you are not seeing much benefit to those paying. Congestion charging of trucks simply means less trucks, with a small improvement in traffic flow, but not to the extent that may be justified by the high toll that the remaining trucks at those times would be paying.

Guardian columnist Dave Hill has an interesting take on the contradictions between the populism of British Conservative Party politicians who resist expansion of congestion charging, and their avowedly free market credentials (which would support economically efficient road pricing). Mayor Boris Johnson took the populist move to abolish the Western extension of London's congestion charge zone, and has been mute about doing anything else. The Conservative Party has tended to take a negative view of road pricing, except for charging lorries on a revenue neutral basis (in order to charge foreign lorries which tend to avoid paying the high fuel tax and vehicle ownership taxes in the UK. Large fuel tanks are known to be filled in lower tax countries before entering the UK). However, it also has MPs and Councillors who are acolytes of the likes of Milton Friedman, who supported road pricing. Populism clashing with free market economics.

Hill makes the conclusion that as public transport users pay fares, so should “motorists pay a fare” to use the roads, forgetting that with 40% of the price of fuel in the UK being tax, they already do pay, and some.

However, setting that aside (bearing in mind the Guardian is a leftwing newspaper and so somewhat unsympathetic to motorists, but sympathetic to public transport), the article makes a sound point. London could make money out of charging for the scarcity of road space, to fix up potholes, improve junctions, even help fund the dream of the Deputy Mayor for new tunnelled routes (one which I sympathise with). Yet there is an inability among politicians in the UK to coherently present road pricing as something that can benefit motorists.

Perhaps the reason lies not only in the current economic climate, when charging anyone more for something is political suicide, but also in the high current levels of motoring taxes. Herein lies where the future of road pricing debate in the UK must be fought – for I doubt if there will be any major expansion of road pricing, without a countervailing reduction in some other form of taxation. It is reasonable to presume that given the Labour Party did such an appalling job in handling the issue (as being motivated by wanting to reduce car traffic is unlikely to be popular with motorists), the Conservatives might know how to manage it and be seen as not "waging war" on the motorist (given how the current government has already explicitly stated it wont be doing that, seen by reducing petrol excise and abolishing an unpopular motorway bus lane). However, the problem is that a party called "conservative" is not necessarily dominated by a culture of wanting radical change.

For now it appears the Conservatives will embrace lorry road user charging in the vignette/time based charging form, and will not interfere with councils doing as they wish with congestion charging, but wont be pushing any road pricing agenda themselves on private motorists. What a pity.

“We have to also look at, not just congestion charging, but also how new technology can be used in terms of charges,'' he told an Australian Financial Review forum.

"New technology means we can have distance tolling, particularly where it comes to freight.”

So once again, the Australian Federal Government appears warm toward heavy vehicle distance charging. In addressing the Roads Australia Summit he gave support for the peak charges now levied on the Sydney Harbour Bridge toll, given it is a form of congestion pricing. He also reportedly supported private toll roads as well, “pointing out that Sydney's earliest roads were tollways” saying that taxpayers have still done well out of bankrupt toll roads like the Cross City Tunnel in Sydney as the private sector bore the losses.

My pick is that whilst the Federal Government is keen to encourage the states to introduce congestion pricing, it is itself keen to build a consensus around distance charging for trucks. The economic case for this may be quite compelling if the right analysis is done around the effects on road maintenance costs, externalities and the elimination of cross-subsidies within the sector.

Wednesday, 10 August 2011

I’ve written a few articles celebrating the benefits to governments from PPPs that transfer risk of failure to the private sector. Examples most recently being in San Diego, USA and Brisbane, Australia. However, if PPPs are not so attracted by bearing all of the risk, they may demand risk sharing if usage is below a minimum level. That, of course does mean that the PPP bears all of the upside, but taxpayers bear much of the downside. Ireland has adopted this model for two expensive toll roads and is now paying for it.

The Independent in Ireland reports that the Irish National Roads Authority (NRA) is paying €5.7 million this year to privately owned toll operators because traffic figures are not meeting estimates. The two routes suffering from low traffic are the Limerick Tunnel and the M3 motorway from Clonee to Kells. Similar guarantees do not apply to other toll road PPPs in Ireland.

The Limerick Tunnel is part of the N18 Limerick Southern Ring Road, effectively an east-west bypass for the city. It costs €1.80 for cars and up to €5.70 for the heaviest trucks. It was expensive by Irish standards, at €600 million, one correspondent to the Irish Times claims traffic figures are 25% below what is needed to avoid state subsidies. The concession is owned by the DirectRoute consortium comprising Strabag AG, John Sisk & Son (Holdings) Ltd, Lagan Holdings Ltd, Roadbridge Ltd (Mulcair), and two third party equity providers - Meridiam Infrastructure Finance S.C.A. SICAR and Allied Irish Banks p.l.c.

The Limerick Tunnel was meant to be part subsidised in any case, with €180 million paid for construction, and another €60 million to be paid over the life of the operation of the road (31 years out of a 35 year concession). However, if the road succeeds it is also mean to be revenue sharing between the NRA and the concession, so there is a potential upside, with a similar arrangement for the M3.

The M3 cost €650 million and is essentially a northwest corridor from Dublin. The toll costs €1.30 per toll plaza for cars and up to €3.30 per toll plaza for the largest trucks. The concession is owned by Eurolink M3 a consortium of Spanish company Cintra Infraestructuras SA and Irish contracting company, SIAC Construction.

It has traffic figures 22% what is the minimum to avoid state subsidies.

However, there are Irish toll roads that do make money. The NRA said it was paid €1.47 million in revenue sharing from successful concessionaires (though this still means a net loss). The N1/M1 (from Dublin to the northern Ireland border towards Belfast) and M4 motorway (west from Dublin towards Galway).

The NRA justifies its decision to guarantee minimum usage of those routes because of their expense, in that if it didn’t happen the prices would be higher as the bidder would factor in the risk. The interesting question would be whether that escalation would be more than what is likely to be paid by the state in the coming years. Under the current economic climate in Ireland, it may be some time before traffic figures recover sufficiently to avoid such subsidies.

Meanwhile, Dublin wont be getting congestion charging soon according to Transport Minister Leo Varadkar, saying that the public transport alternative isn’t good enough. A better reason is that an economic recession is not the right time to impose new charges on road transport. However, I suspect the real reason is politics. The Independent in Ireland also reported that the National Transport Authority said there had to be congestion charging in Dublin by 2020 or the city faces gridlock.

Monday, 8 August 2011

The Royal Automobile Club of Victoria (RACV), Australia, has released a rather interesting statement. RACV's general manager of public policy, Brian Negus has been reported by The Age in Melbourne as saying a shift from fuel tax and annual registration charges to pay for roads, to road pricing is “inevitable”.

“It should be on the basis that fuel excise is removed and a road pricing system comes in… A move to road pricing in this context is inevitable and certainly is the right the way to go in the point of view of getting the right tax structure for motoring”

The report notes figures in Australia that reflect similar challenges to the US. Like the US, indexation of fuel tax does not exist, it was abolished in 2001 meaning fuel tax in real terms has dropped 25% in that time, combined with improved vehicle efficiency, fuel tax revenue as a proportion of GDP has halved in that period.

Combining analysis of petrol and diesel…

“In 14 years, the combined excise on both fuels is projected to fall from 1.7 per cent of GDP to just 0.8 per cent, leaving the government to find $15 billion of revenue elsewhere.”

He specifically saw it as a move towards distance based charging because it would help get the "right tax structure for motoring". Of course, what this shows is that this motoring organisation is probably ahead of many of its members, but it is heartening to see some intelligence in the lobbying in Australia on road charging.

As reported here, the part of the London Congestion Charge zone called the Western Extension (as it was added to the Central Zone in 2007) was closed on 4 January 2011, effectively reducing the area of the charge to the original central zone opened in 2003. This followed the implementation of a promise from Mayor Boris Johnson to consult over the Western extension, with the possibility of scrapping it, if he was elected in 2008. The consultation saw a 62% result of opposition (based on surveys and submissions) opposed to retaining the zone.

For those unfamiliar with the zone, it is depicted in the map below. As you can see, it effectively doubled the size of the congestion charge area. It is worth noting the London Congestion Charge is not a cordon charge, but an area charge in that vehicles are charged not only for entering and exiting the zone, but also if they only circulate within it during charging hours.

- The net revenue loss was estimated at £55 million p.a. (this was net of operational savings);

- Traffic entering the former zone has increased by 8% in the first three months of the year (TfL estimated there would be an 8-15% increase);

- Traffic within the zone has increased by 6% (note that residents had a 90% discount so were less disincentivised to drive and TfL estimated there would be a 6-12% increase);

- Average speeds are down 3% (TfL estimated there would be a 6-12% reduction);

- No impact on air quality (which may reflect the effects of drift from being surrounded by a far larger urban metropolis) except a mild decrease in nitrogen oxide.

The Green Party opposed the abolition of the Western extension, but its abolition appears to be have largely welcomed by local businesses and residents, even though I expect more than a few have forgotten that they now lose their residents’ discount of 90% to enter the Central Zone. For technical reasons, the Western extension and Central Zone were treated “as one” so that anyone paying for one zone, or being a resident of one, would have to pay nothing more to enter the other. In effect, the Western extension offered one of the wealthiest parts of London a 90% discount on driving into central London, something unavailable to all others.

Steve Warwick, Greater London region chairman of the Federation of Small Business, said: “We are very pleased that the western extension of the congestion charging zone has finally been abolished."

My view is that it was poorly conceived and implemented.

It would have been far more effective as a second, distinct charging zone that required an additional charge to that of the central zone, and which did not offer residents a discount for driving in the central zone.

Secondly, it ought to have been applicable for shorter time periods, to reflect the most congested periods, with lower charges during the quieter 1100-1500 period.

Finally, the additional revenue may have best been put into improving road maintenance and the road network (intersection upgrades) so that motorists would see the value of their contribution. Unfortunately, the public opposition to retaining it was too high, so it has gone – and the future development of congestion charging in London is likely to be a far more sophisticated step than the blanket expansion of the area charge. Ideas for that? How about a patchwork of zones, or better yet distance based charging? (and yes, the barriers to implementing either are considerable).

I’ve written before about the loss-making toll road in the provincial city of Tauranga, New Zealand called Route K. Essentially it was a publicly financed toll road that proved not to attract enough traffic to pay down the debt. Its prospects have slightly improved thanks to a new bypass highway to the south of it, which makes it a more convenient route from the south of the city towards, the centre, but it is unlikely it will make enough of a difference. Route K is a 5km, single carriageway highway, which tells you enough that it is low volume route which always made it questionable as a viable toll road in the first place. It cost NZ$45 million (US$37 million) to build the road, including buying the land, but debt on the road is now NZ$55 million (US$45 million). It is only because local government owns it that it stays "solvent".

The Bay of Plenty Times reports that the Crown Agency responsible for the national state highway network, the New Zealand Transport Agency (NZTA), is in talks with the Tauranga City Council to “take over” the road, which presumably would need to include the debt to make it worthwhile for the Council. I expect the Treasury would be opposed. So this would be a form of nationalisation of an albeit local government owned "asset". The road would probably be declared a State Highway entitling it to full funding for maintenance and upgrades, whilst the toll may be retained to help offset the debt.

One small step that could be good for the Council would be for the NZTA to pay the Council for maintenance of the route, given the users of the road pay fuel tax and road user charges like everyone else for it, and that this revenue is not being applied to the road. That means the Council could use all net toll revenue for servicing the loan. Unless central government is feeling generous, Tauranga City Council (and ratepayers) face the ongoing burden, helping the case that private investment might have avoided this risk (because it is unlikely any private investors would have bothered had they done their sums right).

I recall that one reason Route K was toll financed by the Council was that the project didn't have a good enough benefit/cost ratio (I believe it was barely over 1:1) to justify full central government funding from the National Land Transport Fund. That fund is similarly to hypothecated highway accounts elsewhere in the world, in that all fuel tax and road user charges (New Zealand's distance/weight tax charged on all vehicles over 3.5 tonnes and all diesel vehicles) and motor vehicle registration/licensing fee revenue goes into that fund, which is then distributed according to bids for funding from local authorities and the state highway manager. Given Route K was considered a "poor investment" by the then funding agency Transfund, and there was no expected private sector interest, it gives a good indication that the road probably shouldn't have been built in the first place.

It was noted last year that toll roads were not allowed in Nevada, hindering development of a toll funded Boulder City Bypass. Now I can report the Boulder City Bypass is to proceed thanks to the Nevada Legislature passing a bill allowing it according to the Las Vegas Sun. Nevada’s first modern toll road appears to be on its way. Hopefully it will be fully electronic free flow as well.

Friday, 5 August 2011

Those who work in the domain of highways management and public policy in terms of roads typically are operating in a politically driven environment, where competing interests and priorities are balanced in the bureaucratically based management of publicly owned networks.

However, there is a whole world of privately owned commercial, investment grade road assets, that are tolled, with publicly listed companies. Some are well known (e.g. Macquarie Atlas Roads, Transurban, Atlantia), but others are less well known.

Writing in Seeking Alpha, Dr Clemens Scholl (who "manages an investment partnership based on value investing principles") has produced an interesting article that summarises and analyses some of these companies outside the US.

The article summarises the state of 23 toll road companies that are publicly listed globally., 8 are Chinese, 4 in Italy, 3 in Australia, 3 in France, 2 in Brazil, 1 in Argentina, 1 in Portugal and 1 in Thailand. Noting that Atlantia in Italy is the largest, with capitalisation of around US$14 billion.

He says:

Key drivers are, for example, the mobility of the population (number of cars), trade volumes between the node points of the highways, and the population of cities joined by them. Competition by other means of transport (airplane, railway) is also an important factor.

He notes the strong growth in toll roads in China, but sees Australian stocks negatively. That is a little unfair, as Transurban has been far more buoyant than other operators, but the Australian picture has been spoilt by Clem 7 in Brisbane, and both the Lane Cove and Cross City Tunnel in Sydney (all of did not offer sufficiently dramatic improvements in travel times for enough vehicles).

In conclusion he says:

Toll road investments offer a very interesting investment opportunity. However, investors have to be careful about the companies they choose to invest in, and pay special attention to highly leveraged enterprises. As the Australian experience shows, high leverage can lead to very ugly outcomes. Today, the Asian toll road operators offer the most attractive valuations, while some operators in Europe are also worth considering. Asian toll roads have the benefit of better economic prospects, more room for future growth in traffic, and a better balance sheet structure. They also currently offer higher dividend yields.

There are plenty of tables in this article, so it is well worth keeping if you are interested in the finances of commercial toll road investment. The key to such investments are the usual factors of not paying too much and there being solid evidence of demand to sustain revenues. Those that have performed badly either relied on highly optimistic demand forecasts or were in Eurozone peripheral countries.

My pick is that there are bargains to be found in the Eurozone periphery, as toll roads in Spain, Portugal, Ireland and even Italy are in some cases looking rather sad in terms of demand. The opportunities there are to realise some capital, significantly reduce operating costs and seek to maximise revenues within the terms of concession agreements. However, each much be considered on a case by case basis. Transurban, for example, is quite adept at picking winners, more recently turning the cold shoulder at Clem 7. Caution should be taken in stereotyping countries, positively or negatively, and with any investment dependent on mostly localised demand, it requires knowledgeable analysis and industry knowledge to pick the wheat from the chaff.

Cardiff in Wales is not typically seen as a large city with a chronic traffic congestion problem. It has a population of around 340,000. The car is the dominant mode, but it does have an extensive bus network and diesel suburban passenger rail system.

However, Wales Online has reported that the Cardiff Civic Society has a long term vision for the city which it claims will make it more desirable. It proposes that central Cardiff be car free and that a congestion charge be imposed over as much as half of the area of metropolitan Cardiff bounded by the city’s bypass roads. It wants the city’s ring road to be finished, a park and ride network to be established and a light rail system. The objective is clearly focused on shifting transport in the city away from cars, but is also concerned about a so-called “zero Carbon” goal of reducing CO2 emissions (quite how it gets to zero is more intriguing).

It is ambitious indeed, it expects a reduction in traffic in the charged area by about 25-30%, dependent in part on improvements to public transport to meet the park and ride system. The assumption is clearly based on the reductions in car traffic experienced at the start of the London congestion charge, so would need some more thought.

As much as I am supportive of the ambitious, it is clear this has little political traction in the current economic environment. The Guardian reports that Council Leader Rodney Berman opposes it, largely because it wouldn’t get public support, but also because he believes that “At best these proposals are fanciful, but at worst they could have a disastrous effect on the economic viability of the city centre”. He obviously believes car access is important to the city, and that if it is that severely constrained, it will chase business away. If any charge is introduced as new revenue, without cutting other taxes, he may have a point, particularly in the current climate.

Some details would need to be considered. Firstly, whether the charge is an area charge (meaning all movements within it are charged) or cordon (leaving people within the area to drive as much as the like, as long as they don’t leave), as this will effect whether residents would need a discount (as large areas of suburban Cardiff would be affected). I might dare to say that the proposed idea is far too blunt for Cardiff, and that it may be better to start with such a charge in the area proposed for being car free. That would not make a lot of money, but it would reduce congestion and may prove the concept to locals. Beyond that, and I think a less blunt charge, which may have different zones or charge for distance, may be fairer and more effective.

It could also be more acceptable if there was clarity that net revenues from a congestion charge helped pay for the completion of the ring road, and perhaps offset other taxes.

This blog doesn’t exist to argue about the other transport components of the package, but I will give the Cardiff Civic Society credit for courage. For a UK association to propose congestion charging for a city in the current economic climate, and a political climate so hostile to the idea generally, is brave. Whilst I may argue over the details and may disagree with other parts of the package, it at least shows some strategic thinking about what might be done. However, I doubt Cardiff will see congestion charging for at least another ten years.

He cites the $2 billion Clem Jones Tunnel project in Brisbane, Australia and the South Bay Expressway in San Diego County. In both cases the heavy-duty bank investors get priority over all other claimants -- but even they get the short end of their original investment. Some get nothing for their troubles. In both cases, the highway projects kept running through bankruptcy and reorganization.

I've written about both roads before (Clem 7 here and South Bay Expressway here), and indeed it shows that PPP concessions can be arranged to avoid government bearing the capital risks of such projects. Of course, it works because some prove lucrative, such as Melbourne Citylink.

The full essay he wrote appear to no longer be available on the website quoted, but what I do have on the South Bay Expressway is what he was quoted in Sign On San Diego:

"Under the terms of the settlement, owner Macquarie lost all its $150 million equity investment. A group of 10 banks that held $363 million in debt settled for $210 million in new loans (58 percent of the previous amount) and a 68 percent ownership stake. The federal TIFIA (Transportation Infrastructure Finance and Innovation Act) program, suffering its first-ever default, wrote down its $172 million loan to $93 million, while gaining the remaining 32 percent ownership stake."

and so

The best way to deal with that riskiness," he writes, "is to shift it from general taxpayers to sophisticated investors who are prepared to balance the occasional loss in exchange for solid long-term returns in other cases."

It's a lesson naysayers ignore when they look at the profits that toll roads can generate, presuming this is always the case. Yet new routes carry substantial risks, risks that the demand elasticity of users is not that sensitive to time savings, but very sensitive to tolls, risks of economic fluctuations or indeed natural disaster, or dependencies on other projects (the Clem 7 problem).

However, what it requires is good contract preparation and negotiation. Because this IS about ensuring risk transfer is maintained, because concessionaires will, inherently, want to shift risk onto the public sector for as much as possible.

Tuesday, 2 August 2011

As Singapore and Tel Aviv are about to start technology trials of urban congestion pricing using GPS, the UK Department for Transport (DfT) has reported the end of a recent technology trial that, it would be fair to say, has been well below the political and media radar.

The trial was described as:

The Demonstrations Project was a technical research project designed to establish how any system of road pricing by time, distance and place (TDP) could operate reliably, accurately and affordably, whilst safeguarding privacy.

In May 2007, the Department announced that it would work with industry to establish how road pricing by time, distance and place (TDP) might operate reliably, accurately and affordably, whilst safeguarding privacy. To facilitate this it set up the Demonstrations Project.

In September 2008, the Department confirmed in the Official Journal of the European Union the names of the four companies selected to participate in the Demonstrations Project following an open competition - Intelligent Mechatronic Systems (UK), Sanef Tolling Limited, T-Systems Ltd and Trafficmaster plc. Each of these contractors engaged 100 volunteer road users to help explore questions of privacy, accuracy and practicability.

A further three companies - Kapsch TrafficCom Limited, Q-Free ASA and Serco Ltd – were appointed to develop the systems necessary for both road users and the operators of a scheme to be confident that it was operating fairly.

The key finding from the project is that commercially-run time, distance place charging systems (along with an associated payment regime) can deliver accuracy, privacy and a trusted service.

Four Road User Service Providers (RUSPs) took part in research commissioned by the UK Department for Transport (DfT): Sanef, Trafficmaster, T-Systems and Intelligent Mechatronic Systems.

Each demonstrated that a UK scheme could use technology employed elsewhere in Europe for tolling, navigation, fleet management and stolen vehicle tracking.

The services all met the [DfT] requirements for data protection, and offered options to meet the likely range of user requirements in relation to privacy and trust.

The report adds: “The underlying road pricing services are able to measure time, distance and place to a high degree of accuracy, although this was somewhat dependent on the availability of reception of GPS transmissions and the complexity of the charging rules.

So it can be done. It is technically possible, but politically the future is in another approach for now. After all, the start of these trials was under the previous government and already funded. Given the change in government, there is virtually no political appetite for distance based road charging at the moment. However, time-based road user charging for heavy vehicles is very much on the agenda, as reported previously.

The intention is that a UK vignette system for heavy vehicles will be in place by April 2014, following consultation and legislation. It is presumed that it will involve an offsetting reduction in vehicle excise duty, otherwise known as road tax, which is charged on vehicles as an annual ownership levy. UK lorry owners will pay much less on that, but the revenue will be made up by them having to purchase an annual (or less) vignette to pay for the roads. Whether it is part of the multi-national Eurovignette or an exclusively UK one is unclear, what is clear is that it will mean foreign lorries having to pay in a way they never had to before, and that makes the Freight Transport Association happy indeed".

The full details of the "Road Pricing Demonstrations Project" are available now on the UK DfT website here, including all working papers (although the main reported appears corrupted). It is all academic now, but essentially ought to dispel concerns about the practicality of such charging.

The real barriers are the political and public acceptability ones, and those are not likely to be resolvable through technology on.

According to Singapore website Today, the Singapore Land Transport Authority (LTA) has announced that it has awarded tenders to develop the next generation of the Electronic Road Pricing (ERP) system, in order to reduce dependence on physical ERP gantries.

Singapore is currently in its second generation of congestion charging system. The first was the Area Licensing Scheme introduced in 1975, that involved having a paper licence for driving into central Singapore. It was replaced with the tag and beacon/DSRC technology based Electronic Road Pricing (ERP) system in 1998. It charges vehicles with on board units that use prepaid smartcards with stored value. Vehicles pass under gantries and get money deducted from the smartcards inserted in the on board units.

ERP has been a great success, with average speeds increasing 20% with its introduction, and prices altered regularly to maintain a minimum standard of service. Every six months, the LTA can change prices up, if traffic has slowed due to demand, or down if speeds have risen. Prices vary according to each of the 80 gantries across roads, with differences in direction of travel, and different charging periods. In short, every charging point may vary in price according to traffic volumes at that point.

However, the limitations with ERP have become increasingly clear. Notably the high cost of installing the elaborate gantries to detect the vehicles. The gantries have been elaborate in part because they have been using late 1990s technology, but also as they involve substantial two-way communications. Unlike most DSRC systems, Singapore's includes payment from the on board unit, so communications must be reliable in both directions. However, the biggest limitation has been the size, cost and unsightliness of installing new ERP gantries. As a result, given the age of the current system, it is timely for the LTA to consider moving towards a GPS based solution that would allow vehicles to be charged on any roads economically, without the need for gantries.

Today reports that:

Four groups of companies were selected for the trials to come up with the best solution - Kapsch TrafficCom AB; MHI Engine System Asia and NCS; ST Electronics (Info-Comm Systems) and IBM Singapore; and Watchdata Technologies and Beijing Watchdata System.

Each group is to be given seed funding of S$1 million (US$0.83 million) to develop and demonstrate their projects. This includes on-road testing and may involve the installation of roadside equipment in order to facilitate testing.

The trials will last 18 months, but LTA claims it is still an early stage for development of any system. Let's see if Singapore or Tel Aviv is the first city to introduce full distance based congestion pricing, or will it be another?

A report in Chinese based website Global Times reports on the substantial profits being made in operating toll roads in China. China has been building a nationwide expressway network based on toll roads, as part of its infrastructure development policy. It already claims to have the majority of the world's toll roads, which it may do by measure of distance.

The report notes the profitability of publicly listed toll roads:

According to the 2010 annual financial reports of the 19 A-share Shanghai listed expressway companies, their total net profit last year rocketed to 12 billion yuan (US$1.84 billion), an increase of 16 percent year-on-year. And their revenue soared by 19 percent to 33.99 billion yuan (US$5.28 billion).

Given this is profit, it suggests that motorists are willing to pay for the massive improvement in travel times offered by the new expressways. It's worth bearing in mind that in China, these expressways are sometimes replacing single carriageway (one lane each way) at grade highways, with intersections, traffic signals and few opportunities for traffic to pass. The expressways can effectively halve road travel times, making the roads competitive with the railway for the first time. The report also claimed that between 50-70% of logistics costs are the tolls paid for using these roads.

Their annual reports also showed that 15 companies' operating margins were over 50 percent. And the highest operating margin was 88.26 percent, achieved by Chongqing Road & Bridge Co.

The benefit of such high margins for China is that it is encouraging investment and further development of toll roads by the private and state highways companies. China's highway network is being built by commercial means with the private sector, an interesting stark contrast with the similar highway networks built in the United States (Interstates), Germany (Autobahns) and the UK (Motorways). It puts paid to the idea that such roads must be built by the public sector on a not-for-profit basis.

The report continues:

Wang Xiaoyan, an industry analyst at China Minzu Securities, told the Shanghai-based Oriental Morning Post that the main reason why expressway companies' operating margins are so high is that their expenditure basically goes to depreciation of assets, labor costs and facilities maintenance, which add up to a relatively small amount, compared to revenue.

Indeed, with relatively cheap land and labour costs, the actual construction costs of these expressways is rather easy to recover.

An interesting development is the increased used of contracts and the legal system to address issues in this sector, suggesting China's legal system is maturing considerably:

"some companies have cooked up a new idea, which is known as 'unified operating,'" said Wu Chaohua, a lawyer at Beijing Hengde Law Firm.

He said that the companies claim that if they have at least one valid contract, they should still be allowed to operate all their other toll roads, even if their operating contracts have expired.

Wu helped a client to sue the Beijing Capital Highway Development Group in 2007 for continuing to collect fees 15 years after its contract to operate the tolls had expired.

The Chinese Government vehemently defends the use of tolls as a way of facilitating development of the country's highway network. The key goal of tolls being to recover the loans taken out to build infrastructure. However, some steps are being taken to soften the hardened money-making angle to toll roads:

Last month, Feng Zhenglin, a deputy minister of transport, said that the ministry and other relevant government agencies would initiate a campaign to lower some of the higher toll fees, as well as shutting down some toll gates that are too close to each other or that are being operated under expired contracts.

Finally, the report noted:

the case of Henan driver Shi Jianfeng, who was sentenced to life for evading 3.68 million yuan in tolls by using military vehicle license plates.

Now that's a deterrent to evading tolls, although I suspect the life imprisonment is more to do with stealing military licence plates than evading tolls!

The controversy over the Gauteng Freeway Improvement Project in South Africa has been reported previously on this blog. In essence, a 185km upgrade of highways is to be funded through tolls. This is proving controversial because the tolls are being instituted on roads that were previously untolled. Motorists are upset about being expected to pay the tolls for a road they "cannot avoid" and do not currently have to pay tolls on.

Now according to IOL Motoring, South African Transport Minister Sibusiso Ndebele claims the Gauteng project is "one of many" future toll road projects. The claim is that a total of 14 billion Rand (US$2 billion) worth of improvements will be developed and funded using tolls.

The report continued:

Responding to a recent parliamentary question, Ndebele revealed that the so-called “user pay” principle - which he claims will only be applied when required - will go some way towards relieving the state’s R149 billion (US$22 billion)road maintenance shortfall. “The ‘user-pay’ (toll) principle is government policy, but is used selectively and only where feasible, and when used, the benefits outweigh the cost to the road user,” he said.

.”Extensive investigation and evaluation would be done before any final decisions were taken about further tolling, he said. He emphasised that toll fee structures would exclude the initial capital outlay and that users would only be paying for upkeep on the section of road they actually used. Money collected from tolls would also be “ring-fenced” to be used exclusively for maintenance on the applicable route.

Obviously the extensive political fallout around the Gauteng project has made the government slightly more sensitive about tolling. Even so, it was said that tolls will only cover 3 120km – or 2.4 percent – of the country’s 135 000km network of surfaced roads.

However, controversy about tolling is unlikely to end given a recent newspaper report (unavailable) that claimed that a local road engineering company was contracted to do everything from the initial feasibility studies to the costing of the plans and finally the engineering of the project, including the building and operation of the toll gantries. SANRAL claimed there was no conflict of interest, but it is difficult to believe that such horizontal integration across a project can be seen to be maximising value for money, even with the claim of a 20% discount.

Still, the main picture is that tolls are here to stay in South Africa and the government is committed to using tolls to pay for improvements to the highway network. Given that roads are more likely than not to be used by higher income motorists and commercial operators more than the average, it is only fair for those who primarily benefit from the roads to pay for the roads.

Texas has long been a state with a relatively warm view of tolling as a way of funding new road infrastructure. In the most recent development, Texas Governor Rick Perry signed into law Senate Bill 1420 (also called the Sunset Bill) in June 2011, allowing the Texas Department of Transportation and regional mobility authorities to develop 11 highway projects through PPPs.

A key next step is how the next PPP deals shape up according to Open PR. These are reported to be the SH 99 Grand Parkway in Houston and IH-35E Managed Lanes project in Denton. RFIs for both projects have now closed (and were due on 6 and 20 July respectively). Both were reportedly chosen for their likelihood of success. Next project will be the SH 183 managed lanes project in the Dallas-Fort Worth area.

The success of getting those first ones underway will be the prelude to the others. Given reported difficulties over previous attempts, the need for certainty and confidence will be vital for the development of new PPPs in Texas.

Open PR continues...

TxDOT plans to issue RFQs before the end of August, with responses due before the end of October. The department will then draw up a shortlist of potential bidders and issue RFPs in early December, with responses due in mid-February 2012. TxDOT plans to announce a preferred bidder for the Grand Parkway in June 2012 and a preferred bidder for the IH-35E project in July 2012.

“We think we can get through the process in about 12-14 months and do it in an orderly fashion,” said TxDOT chief financial officer James Bass.

The environmental impact studies for the 11 projects included in the Sunset Bill must be completed by Aug. 1, 2013, and the contracts must be enacted by Aug. 31, 2015.

Monday, 1 August 2011

One of the perennial problems for toll violations is when people from outside the national or state jurisdiction fail to pay a toll on a free flow toll system. In London it is a problem with foreign registered vehicles from Europe violating the congestion charge. Having said that, the solution has been for Transport for London (as has been the case for parking violations) to sub-contract enforcement of such vehicles to a private company which has arrangements with the authorities in other countries. One report I saw suggested around one-third of foreign vehicle violations were being captured.

In the USA, between states, it should be easier. A recent report indicated that violators from Nebraska who had used the E-470 Denver toll road were now receiving notices of bills. With the withdrawal of toll booth in 2009, an ANPR system was instituted to send bills to those without accounts and to capture violators. Of course it was limited by the ability of the toll road to access name and address details only of owners of vehicles registered in Colorado.

The toll road operator now has access to the Nebraska DMV, and can send bills. About 12,650 were expected to be sent (the toll road operator chose to ignore violations of more than six months previous).

“We sell our license plate data to toll companies across the country,” DMV director Beverly Neth told me. Neth said the Nebraska DMV, in accordance with state law, releases the names of vehicle owners and their addresses when selling its information about the 2.2 million licensed vehicles in the state.

This database information can be sold “for only a few reasons” — toll roads, insurance companies, law enforcement agencies, motor-vehicle-recall data collectors.
“I don't want to leave the impression that we just willy-nilly sell data,” Neth said. Sales of DMV records bring in about $250,000 each year for the DMV, $2 million for the state's general fund and about $1 million for the state agency that handles recordkeeping, she said. So the state collects more than $3 million from DMV database sales, money that would come from Nebraska taxpayers without those sales.

States selling database information to toll road operators ought, of course, to ensure that they don’t onsell the information to others. As long as other states have similar rules to Nebraska about selling such private data, I’m relaxed about that being a way of pursuing enforcement. Otherwise, such government data could be used for marketing purposes or people may use it to snoop on others.

In Europe, it is clearly a big issue for toll operators with freeflow systems, particularly in the Schengen area (borders with no border control). The European Commission has been trying to broker an agreement among Member States to enable cross-border enforcement of a wide range of traffic violations, but has run into some opposition from Member States who want a right of appeal for their citizens. This isn’t an issue that is easy to fix between countries with different legal systems and approaches to handling citizens’ private data, but will need to be addressed if free flow tolling is to be encouraged in Europe.

Rental cars and toll have been a problem in locations with frequent use of electronic free flow tolls. It has been an issue in Australia with people renting cars but being unaware of how to pay for toll roads, especially when they may drive the road and find no toll booth. Some forget, and so the toll becomes a violation which, like other traffic violations (e.g. speeding), gets passed onto the credit card holder for the booking. For those renting, this can be an expensive nuisance because it is typically much higher than the toll.

Hertz Australia has announced that it has introduced a toll payment service to be included in rental agreements, allowing motorists to pre-register to pay automatically for tolls on any of Sydney’s toll roads. It is called Roam Express Rental e-Pass.

There is an activation fee of A$2.75 (US$3.02) for the first toll road, plus the toll and a A$0.75 fee for each toll point (which is called the “video matching fee”). If there is no toll road used, there is no charge. In essence, it saves the customer time in paying the toll directly, although it does not save money compared to doing so. The key for customers is saving money from penalty charges.

Given the number of times I have been asked the question “what about rental cars” in the context of congestion charging or other forms of road pricing, it is good to see that the market can easily come up with an answer.

The Queensland government has transferred its own state owned company, Queensland Motorways Ltd, to the government owned Queensland Investment Corporation according to the Herald Sun. It is considered an “asset sale” by effectively having the state government’s investment arm buy the company from the state government. The price was A$3 billion (US$3.3 billion). Queensland Motorways owns two major toll motorways (Gateway and Logan motorways) in the state and has run them commercially since its inception. The Logan Motorway is effectively a west-east bypass to the south of Brisbane, whereas the Gateway Motorway is a north-south bypass running to the east of Brisbane.

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What is road pricing?

Road pricing is any system that directly charges motorists for the use of a road or network of roads. Traditionally it has meant tolls on single routes, particularly crossings such as bridges or tunnels. More recently it also includes area, cordon and zone pricing of urban areas, and distance and time based charging of whole networks. It does not include fuel or tyre taxes, or taxes on ownership or purchase of road vehicles.